This weekend, basking in the glow of an easy Philadelphia Eagles victory, I decided to take on a number of Twitter (TWTR) followers who insist that any rally from here is all phony and based on easy money and the Federal Reserve of a gigantic budget deficit or some other legerdemain that's just fanciful and false will wind up ending badly.
I read all of these thoughtful 100 character and change ripostes and I think they all have one thing in common: they hate the market and feel it's just a gigantic house of cards waiting to collapse.
Here's the only problem. I started working in investing professionally in the fall of 1981 with the S&P 500 at 73. It is now at 2946. The Dow? 856. It's now at 26,541.
I know it seems unfair that there could be a moment where the Fed is propping things up and there's a gigantic budget deficit or there's a liquidity bubble because rates are so low but that's just how it works. The market's not perfect. It doesn't make sense a lot. Nevertheless, to fight it every moment as so many people seem to want to do has proven to be a fool's errand.
First, there's something called progress. Our nation has had progress. Our companies have had progress. It's a strange, ethereal issue. But it is highly underrated. Over time good things have happened, more good things than bad. Or we would be a lot lower from back then instead of higher.
Second, we are not in as horrendous a moment as it seems to many of you. It wasn't that long ago, 11 years to be precise, when the country was at a precipice because the banks had taken too much debt down and packaged bad mortgage loans together hoping that, somehow, they would end up being good loans.
The greedy bankers brought down the likes of Washington Mutual, GM (GM) , Fannie Mae, Freddie Mac, American International Group (AIG) , Bear Stearns and Lehman Brothers. They almost destroyed GE (GE) .
The systemic risk to the republic was the highest it had been since the Great Depression. But there were no riots, no insurrection. Nothing. And the center held because the Federal Reserve made it hold. Now I know back then there were people who said there would be moral hazard if the Fed acted decisively, that there would be bad actors who ended up doing well. Fed Chair Ben Bernanke decided the Republic as we know it was worth saving and he did not endorse nationalizing the banking system, something which, we often forget, was totally on the table.
The fact that we got through that period tells you that there is something that is stressed test, namely the stock market itself and it was not found wanting.
Next up, we underrate our bountiful resources and what that can mean for our nation. We have cheap power. We have plenty of oil and gas. We lack for want and if we don't have it our neighbors to the north or south do. We don't really need China for most things, something that the Chinese are just beginning to learn.
We have an educational system that, while not perfect, has created a huge number of entrepreneurs who have in turn created a huge number of enterprises that are hard to duplicate. Our rule of law backs up these entrepreneurs and makes them bankable and our deep capital markets can further provide liquidity. Sure I wish our capital markets right now were more receptive to new deals but investors are fatigued with money losers and know that they have to sell one to get the next one. There's not enough cash around because a majority of investors are choosing index funds which, obviously, can't buy IPOs because they are not in the indices.
And then there are the companies themselves. When I see these negative comments on Twitter they are almost always about the broader political scene. They have to do with Trump bullying the Fed. Or the Fed creating an illusion of sanity where there is none. Or that the Fed has lowered interest rates to the point where stocks are "the only game in town."
While I agree that stocks provide the highest fixed income alternative, I emphatically do not think they are the only game in town. Bonds have been amazing, especially Treasurys, and have been excellent competition to stocks.
But what is really lost on the nihilist, dogmatists is this: stocks represent companies and companies can produce returns regardless of the indices. The indexing gospel doesn't allow for any return other than that from the average stock and there are many companies that have done much better than average.
Stocks can produce both capital returns or dividends or both and the nattering nabobs of negativity don't seem to recognize that companies are capable of giving you one or both of these two streams.
Let's take the entirely visible Apple (AAPL) . Did you know that when Tim Cook took over the reins at Apple the stock was at $58? Now it is at $229. It's paid scads of dividends since then, too.
I know many investors who have fought Apple the whole way. Why? Because they think the earnings have to fall apart because it is too dependent on a cellphone that's not much better than its competition.
I rebel against this. I think, not only is it better, but because the phone is so popular there's a whole ecosystem of Airpods, and watches and paid-for services that are going to end up making more for the company than the handsets. That will make their earnings far less episodic. That will make the value of the stock go higher. Now you may say that, again, that's financial legerdemain, paying more money for the same earnings stream. But I would say the market's simply paying more money because of consistency.
I don't pick on Apple because I think it is unrecognized and Tim Cook is chronically underrated. I pick on it because it doesn't fit the profile of the Twitter complainer. Apple's value isn't being created by the Fed. It's not an untended consequence of an attempt to ignite the economy, or reignite or whatever you think it might be up to. It's a company that has made huge profits and is redeploying them to grow the company and compensate shareholders with dividends.
Only because of the incessant brainwashing of individuals by an industry with a bias toward indexing do we have this attitude that stocks are one and the same. They are anything but as the performance of Apple shows.
I understand that you may think that the entire market is rigged to go higher by the Fed and that it will re-elect the president. I am simply saying that I have heard that clap-trap ever since 2001 and had I listened I would be a lot less wealthier. Why did I chose to ignore the naysayers all of these years? The answer is: I didn't. I just wasn't as possessed by them and, instead I had faith in progress, our abundant natural resources, rule of law, and the overall American ingenuity, even if lots of the success came from immigrants who moved here and created that greatness.